Tuition insurance questioned by mental health advocates, concl.

We are continuing our discussion of a relatively unknown insurance product, tuition insurance. Offered through K-12 private schools and colleges in Florida and elsewhere, the insurance pays the policyholder if the insured — say, a child just entering college — cannot complete the term for a health reason.

The percent of tuition reimbursed is not the same across the board, though. Mental health claims are treated differently. This seems odd, considering that, according to one insurer, mental health claims outpace physical injury and illness claims.

Mental health refunds can be just 75 percent under a plan offered by Sallie Mae (in partnership with another insurer). Perhaps more troubling is the requirement that the insured spend a couple of days in the hospital before coverage will kick in.

One student discovered the disparity in coverage when she became depressed during her first semester. A mental health advocacy group helped her point out the problem to state agencies. The state was able to order the university and the insurer to equalize the coverages.

That move inspired another tuition insurance company to equalize its coverage as well. Insurers generally try not to draw state insurance regulators’ attention to their operations. Sallie Mae is working toward equalizing its plans.

One analyst suggests that Sallie Mae’s plan doesn’t make financial sense, even with the extra hoops in place for mental health coverage. Coverage for $50,000 in tuition, room and board, books and other related expenses costs about $600. That’s the maximum offered; the price goes down, of course, as the coverage decreases.

The red flags come from Sallie’s plans to allow students to obtain coverage after the start of school and an unusually relaxed approach to pre-existing mental illness. There’s an adverse selection issue lurking there: Parents who know their children are at risk will sign up knowing that withdrawal is a real possibility.

Tuition insurance, it seems, poses problems for purchasers and regulators alike. Purchasers may balk at the disparity in mental health coverage, and regulators may raise an eyebrow at the financial viability of the product.

Source: New York Times, “Tuition Refunds, but Not Quite on Equal Terms,” Ron Lieber, 07/22/2011

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